Financial Statement Analysis Project



Financial Statement Analysis Project | |

Description

In this project, you will prepare a complete financial ratio analysis for two companies that operate within the same industry. Using the ratios, you will summarize your findings and make recommendations about investing in each company.

When selecting your companies:

▪ use only domestic corporations

▪ use companies that produce a product – do NOT select service companies

▪ use companies that have their financial statements on-line (SEC filing 10-K).

Requirements

□ Type the report using double-spacing

□ Complete a ratio analysis for both companies for the most recent fiscal year

o Current Ratio

o Quick Ratio

o Inventory Turnover

o Average Collection Period

o Total Asset Turnover

o Debt Ratio

o Times Interest Earned

o Gross Profit Margin

o Operating Profit Margin

o Net Profit Margin

o Earnings per Share

o Return on Total Assets

o Return on Common Equity

o Price/Earnings Ratio

o Market/Book Ratio

o

□ Analyze the companies’ performance in the five key areas relative to each another

o Liquidity

o Activity

o Debt

o Profitability

o Market

□ Make a recommendation as to which company represents the best investment

□ Your final project should contain:

o A ratio analysis for each company

o A report comparing the companies in the five key areas and providing an overall recommendation

o The balance sheet and income statements you used to calculate your ratios (be sure all the data prints out on the pages)

Grammar Review: Then v. Than

1. Then is an adverb that modifies a verb. It means at that time. Examples:

o Wear a green hat; then I’ll recognize you.

o I gathered data from my financial statements. Then I calculated my ratios.

2. Than is a conjunction that hooks together words, phrases and clauses. It compares items. Examples:

o I am stronger than she

o Company A performed better than Company B.

Project Sample

Mark Manufacturing Company

Ratio Analysis

Year Ended 2001

|Ratio |Result |Calculation |

|Current ratio |1.84 |[138,300-75,000] |

|Quick ratio |0.75 |[(138,300-82,000)/75,000] |

|Inventory Turnover |5.61 |[460,000/82,000] |

|Average Collection Period |20.5 days |[34,100/(600,000/360)] |

|Total Asset Turnover |1.47 |[60,000/408,300] |

|Debt Ratio |0.55 |[225,000/408,300] |

|Times Interest Earned |8.0 |[80,000/10,000] |

|Gross Profit Margin |0.233 |[140,000/600,000] |

|Operating Profit Margin |0.133 |[80,000/600,000] |

|Net Profit Margin |0.072 |[42,900/600,000] |

|Return on Total Assets |0.105 |[42,900/408,300] |

|Return on Equity |0.234 |[42,900/183,300] |

|Earnings per Share |$2.15 |[42,900/20,000] |

|Price/Earnings Ratio |N/A |N/A |

|Market/Book Ratio |N/A |N/A |

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DOUBLE-SPACE YOUR DATA

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